Cummins beats Q3 expectations, bullish outlook on demand, margins: Report

Cummins Q3 analysis: Power solutions provider Cummins has surpassed estimates with robust December quarter (Q3FY24) results, analysts said. The company reported year-on-year (YoY) revenue, earnings before interest, taxes, depreciation, and amortisation (EBITDA), and profit after tax (PAT) growth of 16 per cent, 30 per cent, and 27 per cent, respectively, outpacing street expectations.

The robust revenue growth was primarily driven by performances in the powergen, industrial, and distribution segments, which witnessed year-on-year growth rates of 51 per cent, 20 per cent, and 26 per cent, respectively. The powergen segment mainly soared after the completion of a major data centre project, brokerage firm Motilal Oswal said in a note.

However, despite a 40 per cent year-on-year decline in exports, the engine equipment manufacturing company’s domestic sales surged 36 per cent. 

Meanwhile, the company's earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin jumped 230 basis points to 21.2 per cent, fuelled by factors including higher sales from a large project, improved realisation, cost efficiencies, and favourable raw material prices, the brokerage firm noted.

Cummins growth outlook

Cummins anticipates a buoyant demand environment across its segments, driven by factors such as data centre expansions, real estate developments, infrastructure projects, and government initiatives like the Production-Linked Incentive (PLI) scheme. 

Moreover, the company foresees a better price recovery in the powergen market in the first quarter of fiscal year 2025 (Q1FY25) with the transition to higher-emission norm products.

While exports experienced a slump in the December quarter (Q3FY24), the company remains optimistic about a rebound in the forthcoming quarters, supported by recovering market sentiments and strategic opportunities in key regions.

Furthermore, improvements in gross margins and distribution segment revenues are expected to boost margins in the upcoming quarters. 

Motilal Oswal analysts project a 17 per cent compound annual growth rate (CAGR) in revenue over the financial year 2023-2026 estimate (FY23-26E), with a corresponding 20 per cent CAGR in profit after tax (PAT) over the same period. Therefore, analysts have revised the valuation upwards, with a ‘buy’ rating for a target price of Rs 2,910.

The stocks of Cummins settled 0.75 per cent higher at Rs 2,605.15 per share, on February 9, according to BSE.